In some parts of the country, the federal government has provided coronavirus relief grants to more businesses than are eligible to receive them, at a cost of at least $1.3 billion.
An analysis by Bloomberg Businessweek found 52 congressional districts in which the number of recipients of emergency grants made by the Small Business Administration exceeded the number of eligible small businesses.
The grants, made through the now-depleted $20 billion Economic Injury Disaster Loan program, were intended to help small businesses keep their doors open during the coronavirus crisis. Firms could receive $1,000 per employee, up to $10,000. But the analysis found that in some cases far more small businesses receiving the maximum grant of $10,000 than there were firms with 10 or more employees in the area.
“The epicenter was six adjacent congressional districts in the Chicago area, where 81,000 grants were approved even though there are only 19,000 eligible recipients,” Bloomberg Businessweek said. “That’s more than $600 million going to phantom entrepreneurs.”
And the problem could be much bigger. The SBA says it has fraud safeguards in place – but also that it had been under pressure to provide loans quickly as the coronavirus closed down the economy in the spring and early summer.
SBA Inspector General Hannibal Ware warned in July that there was “potentially rampant fraud” in the grant program, citing $47.8 million in suspect loans his office had uncovered. “The level of fraud we’ve seen in this has been pretty pervasive,” Ware told Bloomberg Businessweek.
In a preliminary report, Ware said organized fraud rings had targeted the program. In one example, the IG said: “Various romance scams and social media solicitations persuade people to provide personally identifiable information to ‘get free money.’ The information is then used to apply for SBA economic injury loans and portions of the proceeds go to the ringleader.”
The true cost of the many scams may be considerably higher than the $1.3 billion identified by Bloomberg Businessweek. That analysis focused only on grants of $10,000, but not all of them were reviewed. In addition, the majority of grants made by the program were between $1,000 and $9,000, which raises the possibility that there could be many more suspicious loans to uncover.